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Stephen Kraus was Chief of Insights for SimilarWeb. In this role, he wrote and spoke widely on the power of market intelligence to help companies understand, track and grow their digital presence. With a two-decade track record of thought leadership, Steve is recognized as one of the world’s leading authorities on consumer insights and digital trends. Steve received his Ph.D. in social psychology from Harvard University, where he twice won Harvard's award for teaching excellence.

Conversational commerce has been “this year’s next big thing” for several years in a row. Bots and other intelligent agents, we were told, would routinely and smoothly interact with us everywhere – guiding our shopping, our interactions with brands, and our digital lives more generally.

Uber’s Chris Messina first coined the term in 2015: “ Conversational commerce is utilizing chat, messaging, or other natural language interfaces (i.e. voice) to interact with people, brands, or services….You and I will be talking to brands and companies over Facebook Messenger, WhatsApp, Telegram, Slack and elsewhere before year’s end, and will find it normal.”

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Three years later, do people find it normal? My admittedly anecdotal impression: people don’t consider it science fiction, but it’s not exactly “normal” (and when it does happen, it’s not even particularly satisfying). Certainly, people seem more likely to ask a question of the enthusiastic pop-up chatbots we increasingly encounter online, and the performance of those chatbots has improved dramatically, but it’s still not yet a paradigm shift in consumption. Conversational commerce remains the next big thing, full of promise and potential not yet fully realized. In a sense, chatbot capabilities have grown on the supply side (they seem to be everywhere), but consumer demand for interacting with them is growing more slowly.

The Initial Premise: Conversational commerce will take root where people are conversing

Messina’s initial vision began here, assuming that conversational commerce will take off in the context of messaging platforms like Facebook’s Messenger and WhatsApp. In the U.S., it’s easy to underestimate their global reach and influence, because unlimited domestic texts are part of most U.S. wireless plans. This, coupled with the relative lack of commercial intrusion, has led to texting becoming the most immediate (and most responded to) way of communicating. But in many other countries, texts cost money (particularly for texting across borders), so the texting culture lives in free messenger apps – and their bot-friendly interfaces makes them seem ideal for conversational commerce.

Certainly, Facebook’s positioning in messaging apps is strong. For example, our analysis of the Android messaging market across 188 countries found Facebook’s WhatsApp Messenger to be the top messaging app in 104 countries, and Facebook Messenger is top in 64 countries; together, one of two apps is at the top of 89% of the countries measured. In 70% of the countries, the two apps occupied the #1 and #2 position. Even in a text-heavy country like the U.S., Messenger is on 60% of Android phones, and WhatsApp is on nearly 25%. The reach of these apps, and user engagement with them is truly impressive.

The challenge with messaging apps as a platform for conversational commerce is that they are heavy on the conversation, and light on commerce. People aren’t necessarily buying there, and many are drawn to messaging apps precisely because of the lack of commercial intrusions. Certainly, some Messenger bots that have been successful, including from big-name brands such as E-bay, Uber, Pizza Hut, Mastercard, and Whole Foods (at least before their Amazon purchase). But generally speaking, conversational commerce may struggle to reach its potential within conversation-focused channels.

Conversational commerce 2.0: Grow where commerce is already taking place

A more organic growth path for conversational commerce may be to thrive where commerce is already taking place. Obviously Amazon immediately comes to mind. Amazon accounts for nearly half of all online sales; they garner a majority of product-related search activity; their 8% conversion rate is a multiple of what other sites achieve. Technologically, Amazon largely leapfrogged the chatbot and gone straight to Alexa’s polished voice interface. And in becoming more conversational, Amazon clearly aspires to be less of an order-taker, and more of a personal assistant and trusted confidante – reminding you of upcoming purchases, making recommendations, and suggesting alternative (often Amazon-owned) brands. Google doesn’t sit atop a shopping empire in the same way that Amazon does (in a sense, it sits atop every shopping empire), but it’s attempt to bypass the bot and move to true voice conversations is much like Amazon’s path.

Even with the tremendous investments by Amazon and Google to get their conversation interfaces into homes, conversational commerce still seems like the next big thing, but not quite here yet.

The barrier is less about the limits of artificial intelligence. Since Messina’s comment three years ago, AI has come a long way in sophistication and accessibility. The ability of programmers to mimic human-like conversations has gone from elite teams of computer scientists trying to win Turing competitions to ordering pizza and buying clothes.

The barrier is more about market intelligence – specifically, the ability of AI to leverage consumer data in real time in the context of free-form conversations with consumers. Each of the big players has a wealth of market intelligence to draw upon: Facebook has social intelligence, Amazon has transactional intelligence, and Google has search intelligence (as well as location intelligence, video intelligence via YouTube, etc.). And all three pull in many other data sources as well.

If you are attempting conversational commerce without an understanding of who you are talking with, then you are just winging it. You are hoping to pass the Turing Test with the digital equivalent of charm and quick improvisational thinking. Real conversations come with people we know – we know things about them, and that knowledge drives a truly interactive conversation. The winners will be those best able to build sophisticated conversational AI on top of a deep well of market intelligence.

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